76% of Canadians must be idiots when it comes to saving and planning for retirement!

October 21, 2013
by InvestingForMe

According to Statistics Canada, 76% of Canadians don’t contribute to an RRSP! That’s right – 76%! And that’s with 9.6 million baby boomers on the verge of retirement!
And what’s worse, the 24% contributing to an RRSP only made median contributions of $2,830.00. (The median = the point at which half of contributors contributed more than $2,830, and half contribute less than $2,830.)

Those stats have a lot of people scratching their heads. Don’t those 76%ers read? Or watch TV? Or listen to the radio, talk to their friends, bankers, financial advisors, accountants, etc.? Don’t they know they have to save for retirement? And start saving early and consistently – each and every year? Don’t they know $2,380 is just not going to cut it? Are they all a bunch of idiots?

You can lead a horse to water, but you can’t make him drink

So, obviously there’s some kind of disconnect going on. No matter how much the governments, the investment industry, and the media try to yell from the rooftops that Canadians have to get financially prepared for retirement, that they have to save, invest and accumulate wealth for those happy retirement years, most Canadians for some reason are just not getting the message.

Never mind how we (the investment experts) have created special accounts to try and encourage Canadians to save more with Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), and now the Pooled Registered Pension Plan (PRPPs). We’ve also trained thousands and thousands of Financial Planners, Investment Advisors, and Account Managers to give them outstanding planning, saving and investing advice. We’ve created thousands and thousands of individual investment options to help Canadians grow their savings. And we’ve spent hundreds of millions of dollars advertising the importance of saving for retirement – “start early, save each and every year, invest wisely and enjoy a financially secure retirement!” So why is the message not getting through?

Our world is different today

If you ask those Canadians that have been retired for a while now how they prepared for retirement, you’ll most likely hear the same explanation: I worked hard, lived within my means, paid off my debts, and invested wisely.

And while that answer still applies for Canadians today, things are different from our parents’ and grandparents’ world. How?While Canadians are just as hard working today as in previous generations, unlike prior generations, their inflation adjusted incomes are just not rising. According to StatsCanada, at $68,000, the median after-tax income for Canadian families has not changed for four consecutive years. That makes it pretty difficult for families to have anything extra at the end of the year.

Today’s Canadians are taking on more debt and carrying that debt into their 50s, 60s and onward into retirement. In fact, Canadians have taken on so much debt that they now have a record Debt to Income Ratio of 163.4% (70% in the 1982, 148% in 2009). The largest contributor to the increase has been mortgage debt. Between 1984 and 2009, the overwhelming trend was for average household debt to move in the opposite direction of the interest rate – as interest rates moved lower mortgage debt increased.

Investing wisely for prior generations was a lot easier and much less expensive. Investing when Guaranteed Investment Certificates (GICs) paid 6.0% or 7.0%, such as they did back in 1980s and 1990s, was much easier and less expensive than it is today. Today’s GICs rates go for 2.90%, and most Canadians pay annual management fees - unlike our parents who had very low or no fees. (In the 1980s, a broker’s goal was to generate 0.65% in revenue from client savings – not like today’s 2.0% plus target!)

Is it any wonder a lot of Canadians are finding it difficult to save? No!

So, given today’s increased expenses, what is the majority of Canadians (those 76%ers) to do about their non-existent savings?

Answer: Forget the things you can’t control and work on those things that you can change. In other words, while you can’t control how much money you make, you can control and influence your family’s spending.

But before you can begin to improve your family’s finances, you need to start at the beginning and you need to start today!

Follow this series of articles as we explore the foundations of successful savings, planning, and investing.

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